In their motions to dismiss, or in the alternative for summary judgment, defendants argue that this court lacks jurisdiction to review the Office of the Comptroller of the Currency's (OCC) decision to declare banks owned by plaintiff James Madison Limited (JML) insolvent and place them in receivership. The court finds that it does have jurisdiction to review the OCC's actions under the Administrative Procedures Act (APA); however, such review is limited to ascertaining whether the OCC actions were "arbitrary or capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A).

A. Summary Judgment Standard

The court treats defendants' motions as a request for summary judgment under Fed. R. Civ. P. 56(b). The parties have had a "reasonable opportunity to present all material made pertinent to [the] motion by Rule 56," Neal v. Kelly, 295 U.S. App. D.C. 350, 963 F.2d 453, 456 (D.C. Cir. 1992), and indeed the parties have submitted affidavits, bank records, and other materials pertinent to the dispute. Summary judgment is appropriate where there is no genuine issue as to any material fact and the moving party is entitled to summary judgment as a matter of law. E.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). Inferences drawn from the facts must be viewed in the light most favorable to the party opposing the motion. E.g., Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 26 L. Ed. 2d 142, 90 S. Ct. 1598 (1970).

The OCC particularly noted that the banks' approach to calculating ALLL
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demonstrated "continuing severe weaknesses," and it concluded that the banks were persistently underestimating the risk of loss associated with their outstanding loans. After initiating an on-site examination of the JML banks, the OCC prepared its own ALLL analysis to determine whether the banks' ALLL reserves were sufficient. In performing this analysis, examiners first reviewed a portion of the banks' outstanding loans in order to categorize them according to their quality. Next, the examiners performed a "migration analysis" to estimate necessary reserve amounts based on projected future losses from bad loans. Throughout this process, the banks were given an opportunity to and did comment on the examiners' classification of loans and their methodology in calculating ALLL.
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Nevertheless, the OCC's determination of necessary ALLL reserves differed substantially from that of the JML banks and the banks' own auditors. In fact, the OCC found that based on its analysis, the amount needed to replenish ALLL at the banks would substantially exceed the banks' existing equity capital.

As a result of these findings, the OCC advised the banks on May 1, 1991, that additional loan loss reserves of $ 31.65 million would be required at the JML banks. These additional reserve requirements resulted in substantial equity capital deficits at the banks, and the OCC requested the banks to submit a proposed Capital Plan which would remedy this shortfall. JML submitted a plan which relied in large part upon funds "to be raised from private sources or from or together with FDIC open bank assistance." The OCC rejected this plan on the grounds that it did not present firm sources of equity capital sufficient to meet the banks' short term needs. On May 10, 1991, the OCC declared the JML banks insolvent and appointed the FDIC as receiver for the banks. The FDIC then entered into a Purchase and Assumption Agreement with Signet Bank, under which Signet agreed to purchase certain assets, deposits and liabilities of the JML banks.

In April of 1993 JML, through its assignee Mr. Norman Hecht, filed suit in this court seeking to have the actions of the OCC and the FDIC set aside. JML asserts that both the process by which the OCC calculated ALLL reserves for the JML banks and the OCC's rejection of JML's Capital Plan were improper. Also, JML claims that the FDIC wrongfully declined to provide it with funds in the form of Open Bank Assistance. Specifically, JML's complaint alleges that these actions were arbitrary and capricious, constituted an abuse of discretion, and were done without observance of procedure required by law under §§ 706(2)(A) & (D) of the Administrative Procedure Act. JML has also filed a motion for leave to amend its original complaint to add due process and Federal Tort Claims Act (FTCA) counts.

At the time the JML banks were declared insolvent and placed in receivership, § 191 of the National Banking Act
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provided that "whenever the Comptroller shall become satisfied of the insolvency of a national banking association, he may, after due examination of its affairs . . . appoint a receiver, who shall proceed to close up such association." 12 U.S.C. § 191 (1988). Defendant OCC emphasizes the language of the statute which permits the Comptroller to appoint a receiver "whenever [he] . . . become[s] satisfied" of a bank's insolvency. The OCC suggests that whether a bank is in fact insolvent is irrelevant; all that matters is whether the Comptroller has subjectively determined that it is. The OCC thus concludes that § 191 grants the Comptroller absolute, unreviewable discretion to declare banks insolvent and appoint receivers. The OCC is mistaken.

The determination of a bank's insolvency clearly does not present a situation in which a reviewing court would "have no meaningful standard" against which to judge the OCC's action. While it is certainly true that the language of § 191 vests the Comptroller with substantial discretion in determining whether a bank is insolvent, it is equally clear that to be legitimate, there must be some basis for the Comptroller's action. In a case predating the enactment of the APA, the D.C. Circuit held that a court "will not substitute its judgment for the judgment of the Comptroller, unless it appears by convincing proof that the Comptroller's action is plainly arbitrary, and made in bad faith." United States Savings Bank v. Morgenthau, 66 App. D.C. 234, 85 F.2d 811, 814 (D.C. Cir.), cert. denied, 299 U.S. 605, 81 L. Ed. 446, 57 S. Ct. 232 (1936) (emphasis added). The Morgenthau court's language anticipates the wording of § 706(2)(A) of the APA, which provides for judicial review of agency actions which are "arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law." The parties have not cited, nor has this court's own research revealed, any cases which have explicitly held that insolvency determinations under § 191 are reviewable under the APA; however, dicta from other courts supports the conclusion that they are. See Federal Deposit Ins. Corp. v. Irwin, 916 F.2d 1051, 1054, n.4 (5th Cir. 1990) (noting that "an insolvency receivership decision that is arbitrary, capricious, or an abuse of discretion is reviewable under the Administrative Procedure Act"); see also In re Liquidation of American City Bank and Trust Co., 402 F. Supp. 1229, 1230 (E.D. Wis. 1975); In re Liquidation of Franklin Nat'l Bank, 381 F. Supp. 1390, 1392 (E.D.N.Y. 1974).

Defendant OCC cites Adams v. Nagle, 303 U.S. 532, 82 L. Ed. 999, 58 S. Ct. 687 (1938), in which the Supreme Court found that it would be "intolerable" to permit judicial review of the Comptroller's exercise of his discretion in ordering assessments against the shareholders of a defunct bank. Id. at 540. Adams is not controlling for a number of reasons. First, Adams was decided prior to the enactment of the APA, so at the time there was no statutory basis for reviewing agency decisions. Second, the Adams Court observed that a showing of fraud on the part of the Comptroller might provide a basis for judicial review of the Comptroller's decision. The Court specifically noted that the complaint contained no allegations of "bad faith or fraud on the part of the Comptroller." Id. at 542. Thus, the Court did not wholly foreclose the possibility of judicial review under proper circumstances. Finally, the Court's admonition that it would be "intolerable if the Comptroller's decision could be attacked collaterally in every suit" by an aggrieved party, id., must be considered in light the fact that the banking industry was in a state of emergency during much of the 1930s. Clearly, the Court would have been particularly unwilling to subject bank regulators to judicial second-guessing during this time period.

In sum, although the Comptroller's decision to declare a bank insolvent and appoint a receiver under 12 U.S.C. § 191 is highly discretionary, it is not immune from judicial review. Under § 706(2)(A) of the APA, a court may review the Comptroller's decision to determine whether it was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."

B. Scope of Review

The parties disagree over the appropriate scope of review--that is, what evidence the court may consider in ruling on this summary judgment motion. Defendant OCC argues that the scope of review is limited to the administrative record, while the plaintiff contends that the court may consider bank files, credit records, and all other documents made available to the bank examiners during their investigation of the JML banks. Local Rule 108(h) provides that in motions for summary judgment each party shall file a statement of undisputed, material facts, and "the court may assume that facts identified by the moving party in its statement of material facts are admitted, unless such a fact is controverted in the statement of genuine issues filed" by the opposing party. The facts established under this procedure provide ample basis for the court's ruling in this case; therefore, it is unnecessary to address the party's arguments concerning the scope of review.

C. Standard of Review

The Comptroller's decision to declare the JML banks insolvent is entitled to great deference from this court. See Motor Vehicle Mfrs. v. Ruckelshaus, 231 U.S. App. D.C. 240, 719 F.2d 1159, 1164 (D.C. Cir. 1983). There is a presumption that agency action is valid. Id. Furthermore, "when reviewing an agency's decision concerning matters lying within the agency's field of expertise, a reviewing court should begin by acknowledging that a presumption of procedural and substantive regularity attaches." Franklin Savs. Ass'n v. Director, Office of Thrift Supervision, 934 F.2d 1127, 1147 (10th Cir. 1991). The presumption of the correctness of an agency's determination "is even stronger where Congress has charged an agency with complex analytical responsibilities and the duty to make predictive judgments." Id. at 1147-48.

Analyzing a bank's loan portfolio in order to identify problem loans, classifying those loans according to their risk, estimating the future performance of outstanding loans, and calculating appropriate ALLL levels are precisely the type of technical, predictive judgments of which courts should be extremely deferential. Thus, in examining the process by which the Comptroller reached his decision to declare the JML banks insolvent and appoint a receiver, this court's inquiry is limited to determining whether there was a "rational basis" for the decision. See Franklin Savs., 934 F.2d at 1148.

2. Plaintiff's Motion for Leave to File a Second Affidavit of Mitchel Neitzey is GRANTED.

3. Plaintiff's motion to amend its complaint to add FDIC in its corpor ate capacity is GRANTED.

4. The balance of plaintiff's motion to amend its complaint is DENIED as futile.

5. Defendant OCC's summary judgment motion is GRANTED.

6. Defendant FDIC's summary judgment motion is GRANTED.

7. This action now stands DISMISSED WITH PREJUDICE.

SO ORDERED

Royce C. Lamberth

United States District Judge

DATE: 10-28-94

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